The prospect of a trade war between the US and China has put markets under pressure this week, and although there was some recovery today, it was by no means convincing. As well as continuing uncertainty over the effect of the proposed tariffs, oil prices were volatile ahead of this week’s Opec meeting. Meanwhile the pound edged a little higher after the UK government won a key Brexit vote. The final scores showed:
The FTSE 100 finished up 23.55 points or 0.31% at 7627.40
Germany’s Dax added 0.14% to 12,695.16
France’s Cac closed down 0.34% at 5372.31
Italy’s FTSE MIB added 0.16% to 22,120.58
Spain’s Ibex ended up 0.34% to 9788.9
On Wall Street, the Dow Jones Industrial Average is currently down around 10 points or 0.05%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Oil edges higher ahead of Opec meeting as US crude stocks decline
Oil prices are edging higher ahead of the key Opec meeting which begins on Thursday and following a bigger than expected fall in US crude stocks.
The oil producers are expected to agree to increase output but the key question is by how much. Meanwhile evidence of rising demand came from the weekly US figures, which saw a 5.9m barrel decline, the biggest drop since mid-January. On the other hand there was a 3.3m barrel rise in gasoline stocks compared to expectations of a 1m fall.
Brent is currently up 0.19% at $75.22 a barrel. Joshua Mahony, market analyst at IG, said:
Crude oil is also in focus, with a whole raft of comments coming from OPEC member states ahead of Friday’s big production decision. Despite an initial rebuttal of a production increase proposed by Russia (via Saudi Arabia), we are seeing a gradual shift in tone which will likely see some form of rise in output come Friday.
For markets, the line in the sand seems to be the 1 million barrels a day level. Anything less than that will be seen as a compromise given the Saudi target is closer to 1.5 million barrels a day. We have seen the biggest drawdown in US crude inventories since January, but the impact has been offset by a rise in gasoline supply.
Back with the Anglo Irish case and former chief executive David Drumm has been sentenced to eight years in jail for his part in the fraud, but will serve six with mitigating circumstances taken into account.
Investor enthusiasm appears to be waning, with markets coming off their best levels. Connor Campbell, market analyst at Spreadex, said:
The Dow Jones, which at one point looked like it was going to reclaim 150 points, ended up starting the US session flat, the wrong side of 24700. There was little for the index to really work with on Wednesday, beyond the ever-looming threat of a full-blown trade war between the world’s two largest economies.
The Eurozone, which started the week poorly and then went downhill from there, saw its initial tame recovery gradually chipped away at until nothing was left. That means the DAX is back struggling to keep its head above 12700, while the CAC tumbled below 5400 after switching from a 0.3% rise to a 0.2% loss.
Only the FTSE remained in the green with any real substance, and even then its 0.6% increase was half of the growth posted at lunchtime. Though the UK index broadly just followed the direction of trading from around the Western world, sterling’s reversal of its initial losses also helped erase some of the FTSE’s gains. The pound rose 0.1% against the dollar and the euro – granted, not a lot in the context of its recent performance – as the government appeared to come to a compromise over the ‘meaningful vote’ issue, but couldn’t gain any more momentum thanks to Thursday’s impending Bank of England meeting.
US commerce secretary Wilbur Ross has been speaking about the trade dispute with China. He says President Trump’s strategy is to make it clear to China that continuing on its current path would be more painful that changing its behaviour.
Back with the bids for 21st Century Fox, and Neil Wilson at Markets.com says the market is now waiting for Comcast’s next move after Disney increased its offer:
As was expected, cash was added to the all-share offer as a sweetener and the deal is now worth $38 a share, up from its previous $28 offer that was worth c$55bn. This beats Comcast’s $35 all-cash, $65bn bid but we must assume that Comcast is ready to come back with an even stronger offer.
This offer from Disney is probably a little bit stronger than expected and [Disney’s] Iger will be looking to kill off Comcast’s bid once and for all. However, the rationale for Comcast remains the same, the question is only how much debt it can afford to carry. If it gets its way total debt would rise to $170bn according to Moody’s, with just $6bn in cash on its books. Disney will also take on Fox’s $14bn debts, giving this bid an enterprise value of more than $85bn.
Debt is a concern for investors here and points to market-top behaviour. The amount of debt both companies are prepared to assume is arguably a worry, but it’s a case of innovate or die in the face of competition. It’s a sign of just how desperately these two legacy media groups want the assets of Fox. In their attempt to contend with cord cutters like Netflix they are risking leveraging themselves up to a degree that makes them susceptible should the current benign market conditions deteriorate.
Sky shares are trading up 3% today at £13.82 on the news but they could go higher if Comcast really goes big. Even it doesn’t have the appetite for all of Fox it could settle to swoop for Sky only and bag those important European subscription revs.
US markets have joined in the generally positive mood after the week’s sell-offs as trade tensions between the US and China escalated.
The Dow Jones Industrial Average is currently up 80 points or 0.33%, while the S&P 500 opened up 0.325 and the Nasdaq Composite 0.5% better.
But General Electric shares are down after the group was pushed out of the 30 share Dow after more than a century. GE, one of the original members of the Dow, will be replaced by Walgreens Boots Alliance.
Back with trade disputes, and the European Union has confirmed it will begin charging import duties of 25% on a range of US products on Friday. The move is in retaliation to the US tariffs imposed on EU steel and aluminium.
The EU tariffs will be placed on €2.8bn worth of goods, from Harley Davidson motor bikes to bourbon and peanuts.
Over in the US, and the country’s current account deficit widened in the first quarter, but by less than forecast. Reuters reports:
The Commerce Department said the current account deficit, which measures the flow of goods, services and investments into and out of the country, widened by $8.0 billion to $124.1 billion, or 2.5 percent of national economic output, in the first three months of the year.
Analysts polled by Reuters had expected the current account deficit to widen to $129.0 billion from the previously reported $128.2 billion in the fourth quarter.
The figures also showed that US companies brought back cash from overseas after a December 2017 tax change. Companies paid out dividends of around $305bn from foreign receipts.
Newsflash: The takeover battle over Rupert Murdoch’s 21st Century Fox group has taken another twist.
Disney has raised its offer for most of 21CF to $38bn per share, up from a previous offer of $28 per share.
That takes the value of the offer up to around $70bn, from $52bn previously. Disney has also tweaked its offer to include a cash component - previously it was only offering shares.
It beats Comcast’s rival all-cash offer of $35 per share, and seemingly puts Disney back in poll position.
21st Century Fox accepted a sweetened, $38-a-share bid from Walt Disney Co. for its entertainment assets, dealing a blow to Comcast’s efforts to acquire the business https://t.co/OvWVzbP7sVpic.twitter.com/cyWEyuv6S5
Anglo Irish boss sentenced over €7.2bn conspiracy to defraud
Former Anglo Irish Bank executive David Drumm. Photograph: Brian Lawless/PA
Over in Dublin, one of Ireland’s fallen bank bosses is being sentenced over his role in the financial crisis.
David Drumm, the former CEO of Anglo Irish bank, faces a prison term after being found guilty of conspiracy to defraud and false accounting earlier this year.
The case relating to banking transactions he was involved in at the height of 2008 financial crisis. By circulating deposits between Anglo and Irish Life & Permanent (IL&P), the bank created the impression that its deposits were €7.2bn larger than was actually the case.
Tom Lyons, deputy editor of The Sunday Business Post, is tweeting from the court room. He reports that Drumm’s team is defending his actions, while also recognising that a custodial sentence is on the cards....
Defence outlines all the people who knew about the transaction to some extent either in Anglo or the Central Bank other than Dd.
Now cv. Father died 64. Truck driver. Mother hairdresser recently retired. Left school 16. Then c.v. Says Dd complied with bail conditions and his case marked by media interest. Concludes "thanks very much."
Dd says "huge error of judgement" to authorise but did not see as crime. Says FR gave "tacit" if not specific approval. Says transaction grew as economic climate got worse.
Transaction has to be seen in context bank was facing "annihilation." Only happened after transactions passed "under the eyes" of professionals and civil servants. Nobody "raised a red flag" around publication of accounts
Arguing both charges based on same events and should be treated as same. Says nobody made "personal gain" was done to save the bank - and was "futile" as bank failed because of "overexposure to development loans."
Lukman Otunuga, research analyst at FXTM, says investors should be cautious about joining today’s rally.
He points out that the trade spat between China and the US could escalates again soon.
Asian and European stocks rose today as markets attempted to shrug off trade war threats. While the improved risk appetite could elevate stock markets higher, the sustainability should be questioned as fears over trade tensions remain a key market theme.
Global equity bears could transform the current rebound into a classical dead cat bounce if trade tensions between the United States and China continue to escalate.
The Bank of England could face a major shake-up if Labour wins the next election.
Labour’s shadow chancellor, John McDonnell, is unveiling a swathe of proposed reforms to Britain’s central bank today.
The headline-grabbing elements include opening an office in Birmingham, a shift away from its base at London’s Threadneedle Street. The most intriguing element - setting the Bank a productivity target, alongside its current mandate to control inflation.
These ideas aren’t Labour policy yet, but they could be considered for its next manifesto:
John McDonnell says he will be recommending the GFC report to the Labour party "because I support it" -- in other words, he would like the Bank to have a productivity target - but it's for the party as a whole to decide.
McDonnell says he's on a "tea offensive" of the City of London to talk bankers and fund managers through Labour's economic plans. "Once we cut through some of the media coverage... we're generally finding we're on the same page."
Good news: UK factory orders have risen, helping manufacturers to boost their output.
The CBI’s latest healthcheck on the sector has found that manufacturing order books recovered in the last quarter, while the volume of output increased strongly.
The CBI says:
33% of manufacturers reported total order books to be above normal, and 20% said they were below normal, giving a balance of +13%
20% of firms said their export order books were above normal, and 11% said they were below normal, giving a balance of +9%
43% of businesses said the volume of output over the past three months was up, and 13% said it was down, giving a rounded balance of +29%
Anna Leach, CBI Head of Economic Intelligence, believes Britain’s industrial sector may be picking up pace after a recent lull.
“The recovery in orders and a return to bumper growth in production suggests the lull in manufacturing activity may be over. While risks to demand persist from Brexit and escalating global trade tensions, firms can work with the Government to nurture a pro-enterprise environment that helps UK growth to shift up a gear.
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